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Green is also the colour of money: EU carbon trading failure as a model for the 'green economy'

By Ricardo Coelho

September 16, 2012 -- Corner House/Carbon Trade Watch -- The first two phases of the EU Emissions Trading Scheme (2005-2007,
2008-2012) allocated free permits according to historical emissions; a
practice known as "grandfathering" that has acted as a de facto subsidy
for the biggest polluters. Electricity producers, for example, by
increasing electricity prices in line with the price of the permits they
received for free, have made windfall profits of between €23 to €71
billion during the second phase. The third phase (2013-2020) will still
see significant subsidies paid to industry.

Given the additional fact that too many of the permits were
allocated, prices were volatile and low, allowing polluters to buy their
way out of reducing emissions very cheaply. At the end of 2007, the
price of carbon permits bottomed out at €0.02, down from an average €20
to €30 one year before. With allowance prices set to continue at a level
powerless to incentivise structural change, the idea that the EU ETS
could help address climate change has simply fallen by the wayside. The
offset credits used in the system, which are priced even lower, are
meanwhile regarded as the “world’s worst-performing commodity”.

Permits for the third phase are supposed to be auctioned to power
producers instead of being given away free. However, the cost of permits
can be easily passed on to consumers. The electricity industry,
with the support of the oil industry, has also managed to grab a subsidy
from the auction of 300 million permits from the New Entrants Reserve
(for new companies that join the EU ETS) to use in "clean energy" projects. These include the risky technologies of carbon capture and
storage (CCS) and agrofuels, both of which help lock in a pattern of
high, fossil-fuelled energy use.

The European Commission is both commodity supplier and regulator in the
EU ETS, making the market easy prey for corporate manipulation and
rent-seeking. Here, as elsewhere, carbon trading is being used to
pre-empt and delay the structural changes necessary to address climate change. Proposals for reform, all of them
premised on plans for expanding rather than phasing out carbon markets,
function to make the situation even worse.